Alexandre Rocha
São Paulo – With the end of subsidies provided by the European Union to its producers, Brazil may export an extra 1.5 million tonnes of sugar a year, and have extra annual revenues of US$ 400 million. This is the evaluation of the São Paulo Sugar Cane Agroindustry Union (Unica). The organization represents the sector in the state in southestern Brazil, and answers to around 60% of production of the commodity in the country.
Brazil, Australia and Thailand obtained, on Tuesday (03), a preliminary WTO verdict against European subsidies which, according to specialists addressed by ANBA, should be confirmed in a second hearing, after the appeals the bloc has the right to.
According to Elisabete Serodio, an Unica consultant, due to the European Union agreement with the WTO, the bloc should only be able to export 1,273,500 tonnes of the subsidized product and have revenues of a maximum of 499.1 million euros. What actually occurs, according to the consultant, is that the Europeans expect to export 5.2 million tonnes this year. Brazil, Thailand, and Australia have accused the Europeans of subsidizing their entire export.
This means that, with the end of subsidies, there should be a reduction of around 4 million tonnes of product offer on the international market, the difference of what may be subsidized and what is effectively subsidized by the EU. Brazil, as the largest world sugar producer and exporter should take charge of a large part of this demand.
"With the measure, the European Union loses everything," explained Elisabete. This is because, without subsidies, production costs make export of the European product commercially impossible.
Information supplied by the Unica shows that production cost on the European continent is around US$ 700 per tonne. In Brazil it is between US$ 90 and US$ 150 per tonne, depending on the productive region, and the price per tonne of the product on the foreign market is around US$ 260.
"Considering the international price, it is not possible for the European Union to participate in the market without subsidies," stated José Ricardo Severo, technical advisor for the National Confederation of Agriculture and Livestock (CNA).
He added that there are factors in Brazilian production with which the Europeans cannot compete, such as the use of sugar cane bagasse as a fuel for boilers and even for the production of electric energy at the mills. In Europe, the raw material from which sugar is produced is beetroot, which does not produce "dry by-products," obliging local producers to use diesel oil as an energy source, increasing their cost. "Raw material in Brazil is used to the maximum,” she stated.
Arab Market
In terms of destinations, Brazil may increase its participation in markets it already sells to, especially those in the north of Africa and in the Middle East, explained Elisabete. The Asian demand, in turn, should be supplied by Australian and Thailand.
"The largest EU buyers also import from Brazil, including the United Arab Emirates, Algeria, and Egypt. I do not believe that new markets will arise, but I believe there will be an increase in Brazilian sales to those markets it already supplies,” she explained.
Arab Brazilian Chamber of Commerce (CCAB) secretary general Michel Alaby agrees. According to him, Algeria, for example, purchases around 1 million tonnes of sugar a year, one third bought from Brazil and two thirds bought from European countries.
"The WTO decision is going to open new doors for Brazil, especially in Europe itself, and in countries that purchase from the Europeans, as is the case with the Arab countries,” stated Alaby. Apart from Algeria, Egypt, and the Emirates, he believes that sales may also increase to Tunisia, Morocco, Saudi Arabia, Kuwait, and Syria.
But the CCAB director also pointed out that the decision will not have an immediate effect, as the EU has a period of between 20 and 160 days to appeal. Apart from that, it is necessary to consider the stocks of importer countries . For José Ricardo Severo, from the CNA, the effects of this measure will only be felt after two years. Elisabete pointed out, however, that Brazil has total conditions of rapidly answering the growing demand.
Apart from the growth in Brazilian shipping, the future exit of the European Union from the list of large world exporters should result in an increase of the price of the commodity on the foreign market. The specialists were also unanimous in this respect.
"With lower world production, prices rise. All you have to observe is the example of cotton, where estimates show a 12% price increase,” stated Alaby. In the first half of this year, the WTO also granted Brazil a victory in the case of US subsidies to their cotton producers.
Elisabete added that Brazil should export more refined sugar, the main product sold by the EU, a product with greater added value than the raw sugar Brazil exports most of. The latter currently answers to the greatest part of Brazilian foreign trade.
Sugar and alcohol sector
It is not possible to ignore the effects the WTO decision on sugar will have on the Brazilian economy, as the sugar and alcohol sector is one that generates around one million direct jobs in the country and has a turnover of over US$ 8.3 billion a year.
In the last harvest, Brazil produced 23.4 million tonnes of sugar and exported 12.9 million tonnes in 2003, providing revenues of US$ 2.1 billion. For this year, the forecast is that 14 million tonnes be shipped.
In the case of alcohol, production totalled over 14 billion litres in the last harvest with export of 757 million litres in 2003, generating revenues of US$ 157.9 million. For this year, it is estimated that shipping should total 1.5 billion litres. In the first half of the year, export totalled around 900 million litres, against 246 million in the same period last year.
Together with the increase in alcohol demand on the domestic market, with the release of “flex fuel” engines – which can use both petrol and the product produced from sugar cane -, Severo stated that the sector has great expectations regarding export increases to a series of countries that have started adopting the use of anhydrous alcohol as an "oxygenator" to be mixed with petrol in replacement of MTBE (Methyl Tertiary Butyl Ether), so as to reduce pollution levels.
According to him, there has already been surprising growth in sales to Florida, USA, Japan, Korea, and India. The increase has not only been in anhydrous alcohol, but also in alcohol for industrial use.
